Will Cost Savings Drive Cracker Barrel's Q2 Earnings?

The company's strong initiatives to drive revenues through efficient marketing, seasonal promotions as well as unit growth are likely to reflect in the to-be-reported quarter's top line. Strong cost-cutting efforts may also reflect in the second-quarter results.

Notably, the company's shares have rallied 15.4% in the past six months, outperforming the industry's gain of 3.9%.

Let's see how Cracker Barrel's top and bottom line will shape up in the to-be-reported quarter.

The company is stressing on the growth in its off-premise business. It is introducing new catering, menu and in-store training of hourly employees to enhance business. Anticipating off-premise sales to be the primary source of full-year sales, the company is investing in marketing efforts like social and digital messaging, geo-targeted consumer emails and in-store collateral.

Coming to menu innovation, Cracker Barrel recently introduced a coffee platform in approximately 40 stores. The company believes that the platform will complement its all-day breakfast offering through its check favorability and promote guest perception of variety of menu offerings. Cracker Barrel is also introducing television and social media messaging to attract a greater number of consumers.

In the second quarter, the company supposedly worked on the quality and exclusivity of its assortments, placing greater emphasis on price-value relationship. All such strategies are likely to drive the top line in the second quarter.

Cost Cutting to Favor Earnings

Cracker Barrel has a wide range of cost-cutting mechanisms in place. The company altered its retail sales and service structure in a way that allows it to deploy fewer associates during the outlet's low volume hours, thereby reducing store hourly labor by 25-30 hours per week.

Moreover, Cracker Barrel follows a specific food management program that includes operational improvements, additional focus on food reporting and analytics, as well as a food auditing process. This program resulted in reducing the restaurants' cost of goods sold. On the utilities front, the company has undertaken the implementation of LED lighting, which is being installed on the exterior of its stores. This is improving energy efficiencies and driving cost favorability.

Notably, for fiscal 2018, the company is attempting to deliver between $7 and $8 million in annual cost savings. The cost-savings mechanism helps the company witness margin improvement and thereby favors earnings.

Subsequently, the consensus estimate for second-quarter earnings is pegged at $2.32, mirroring 5.9% year-over-year growth, higher than the company's expected EPS range of $2.15 and $2.25.

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